Set and Forget: 1 Dividend Stock That Could Create $12,154 in Tax-Free Passive Income in 10 Years

A dividend stock can create massive passive income over time, especially over a decade, thanks to the power of compounding. When you reinvest your dividends, you’re essentially buying more shares. This, in turn, generates even more dividends. Over time, this snowball effect can grow your income significantly, especially if the company consistently increases its dividend. Plus, with the potential for stock price appreciation, you not only enjoy a steady flow of income but also the potential for capital gains, making it a win-win for long-term investors!

KP Tissue

KP Tissue (TSX:KPT) is a Canadian company that focuses on producing and selling tissue products, like paper towels, toilet paper, and facial tissues. It’s closely tied to Kruger Products, one of the leading manufacturers of tissue products in Canada. KP Tissue essentially holds a large stake in Kruger Products and benefits from the performance of this well-established brand. From everyday household items to commercial needs, Kruger Products is known for offering reliable products under popular brands like Cashmere, Scotties, and SpongeTowels. This means KP Tissue shareholders have exposure to a solid, essential industry.

For investors, KP Tissue is appealing because of its steady demand, as people always need tissue products! The company also offers a dividend, making it an interesting pick for those who are looking for both growth and income. Though the stock may not be the most exciting in terms of wild price movements, its stable industry is coupled with a regular dividend, thereby making it a solid choice for investors looking to add some steady cash flow to their portfolio.

Into earnings

KP Tissue’s second-quarter 2024 earnings reveal solid performance, with revenue climbing to $509.8 million, a 9.3% increase compared to the second quarter (Q2) of 2023. The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also saw an impressive boost, growing by 18.6% to $65.3 million. Key drivers of these results include higher sales volumes, a favourable product mix, and increased prices, particularly in its consumer segment. Despite higher costs, lower pulp prices helped the company maintain profitability.

Investors should note the company’s pricing strategy. This aims to combat escalating pulp prices and will be essential to sustaining margins moving forward. While net income did drop by $3.9 million to $10.6 million compared to last year, largely due to foreign exchange losses and depreciation, the company’s solid growth in both Canada and the U.S. remains a positive sign. Plus, KP Tissue continues to pay a quarterly dividend of $0.18 per share, which adds value for income-seeking investors.

Looking ahead

KP Tissue’s future outlook appears steady, with analysts generally recognizing the company’s resilience in the tissue products market. Over the next decade, KP Tissue is expected to benefit from consistent demand for household essentials like paper towels and toilet paper, both in Canada and the United States. Plus, its strong ties to Kruger Products, which dominates key market segments, provide a reliable base for long-term growth.

From a valuation perspective, KP Tissue still looks valuable to income-focused investors. With a forward dividend yield of 8.56%, it offers an attractive return, especially for those seeking passive income. Although its payout ratio is currently high, the company has a solid track record of maintaining dividends, making it a compelling option for dividend seekers. With its relatively low price-to-book ratio of 1.17, it may also represent a bargain compared to peers. In the long term, analysts believe KP Tissue could deliver solid returns as it continues to navigate pricing strategies and growth opportunities in the tissue market.

Bottom line

So, how much could you get from this top passive-income stock? Let’s say we see the company continue to climb by its compound annual growth rate (CAGR) of 3.14%. In that time, you’ll be collecting dividends each and every year. Here is around what you might see in that time from a $10,000 investment.

After 10 years, you could have $3,615.28 in returns. Plus, by adding $853.92 over a decade, you’ll create $8,539.20 in dividends! That’s total passive income of $12,154.48 — more than double your original investment!